Monday, January 31, 2011

On January 27, 2011, S&P lowered Japan's long-term sovereign debt rating for the first time in nine years to AA- from AA. According to S&P, the government "lacks a coherent strategy" to tackle Japan's debt load, which could lead government debt ratios to peak only in the mid-2020s. Japan's gross-public-debt-to-GDP ratio, which was 189.3% in 2009, is the highest among developed economies.

Though a sovereign debt crisis like that of Greece is not imminent, without increasing the national tax burden—which is relatively low compared to other major economies—Japan will not be able to sustain public spending without incurring more debt. Japan's aging population and underfunded pensions exacerbate this burden. Issuing more debt to finance public expenditures is easier for Japan compared to other European countries with high debt because Japan benefits from low debt-servicing costs in part due to chronic deflation. Unlike Greece, Japan maintains a current account surplus and a net foreign asset position. Locals hold around 95% of Japan's debt, whereas foreigners hold more than three-quarters of Greece's debt.

Unless proposed expenditures are minimized, Prime Minister Naoto Kan’s administration will struggle to fund its 2011 budget without reneging on its JPY44-trillion cap on new bond issuance. Tax revenue will fall alongside corporate profits and personal income. Since Kan’s aggressive advocacy of a consumption tax hike cost his party the Upper House, plans for the hike are likely to be shelved. A corporate tax cut remains under consideration, but budget deficits will be hard to shake off without a corresponding increase in revenue elsewhere. S&P estimated (according to its January 27, 2011, note "Ratings On Japan Lowered To 'AA-'; Outlook Stable") that Japan's government fiscal deficits will decline from an estimated 9.1% of GDP in FY2011 (ending March 31, 2011) to 8.0% in FY2013. Unless the government undertakes a fiscal consolidation program, S&P does not foresee Japan achieving a primary external balance before 2020.

Japan's Cabinet Office estimated that the primary fiscal deficit, which excludes debt-servicing costs, will total JPY21.7 trillion in FY2015, 4.2% of GDP. In FY2020, Japan is estimated to post a primary budget deficit of JPY23.2 trillion, or 4.2% of nominal GDP. If real GDP grows more than 2% each year, Japan's primary balance deficit would be 3.2% of nominal GDP in FY2015 and 2.5% in FY2020.

The OECD forecasts that Japan's gross public debt will exceed 200% of GDP in 2011. In order to halve the primary budget deficit by 2015, the OECD maintains that additional tax revenue need to be generated and that the BoJ should "should implement more ambitious quantitative easing measures to relax monetary conditions in the face of entrenched deflation and maintain such policies until underlying inflation is significantly positive."

Japan’s long-term public debt has risen to JPY862 trillion (US$9.26 trillion), nearly 200% of the nation’s 2009 gross domestic product. Japan’s debt was 189.3% of GDP in 2009 and is projected to grow to 204.3 % in 2011.On January 18, 2011, credit-default swaps (CDS) used to protect payment of Japanese government debt, hit a six-month high and climbed to 86.49 bps. This means that it costs $86,490 to insure $10 million in Japanese debt. CDS for U.S. debt were 49.85 bp.

Why The Debt Is "Manageable"

The financing of Japan’s public sector debt is currently enjoying an extremely virtuous confluence of events—the strong home bias of domestic investors, ample domestic savings, and modest deflation. As long as these persist, financing the public sector debt should not be problematic...In the near term, it seems likely that the three conditions that have eased the financing of Japan’s public debt will persist.

While JGB market participants believe Japan occupies the worst fiscal position in the world, the nation's fiscal problems can still be rectified with tax hikes. The basis for this optimism appears to lie in Japan's low social contribution rate, one of the lowest in the world at 39%. A social contribution rate of 52.3%, a rate on par with European nations, would be sufficient to cover recent fiscal deficits.

In addition, the JGB market seems to have concluded that the Japanese government can fiscally consolidate because the there is room to raise the consumption tax rate, currently the lowest in the world at 5%.

Despite the high level of government indebtedness, the budgetary burden of servicing debt interest is not especially high as a share of GDP and revenue, especially once account is taken of the relatively low tax/GDP ratio. This reflects the fact that interest rates on government borrowing remain low in nominal and real terms.

Currency and deposits make up over 55% of assets for Japanese households. Compared to just 14.3% in America. This represents about US$8.9 trillion in savings that could potentially be mobilized to support the Japanese government debt. Americans by contrast, hold a far greater amount of their wealth in the stock market. U.S. households have over 30% of their assets in shares and equities. As opposed to just 6.6% in Japan. Japanese household savings are over 100% of outstanding government debt. With the American government now sitting $12.7 trillion in the red, household savings are only at 50% of debt.Japan is better placed than either the U.S. or the UK. This is partly because the debt problem is frequently overstated, as net debt is only about half the gross level, but also because the switch from investment, financed by untaxed depreciation, into incomes and spending which are taxed twice, will mean that tax revenue should rise rapidly with recovery.

The Japanese private sector remains in a position of net creditor, offsetting the government's position as a borrower, not to mention that more than 95% of Japanese debt is still held by Japanese investors. Unless the private Japanese investors switches out of the deposits, or dumps the yen in favour of other currencies, or start selling bonds in droves - I do not see this being a grave issue. Its not good but its not catastrophic.

Thats the sad part, Japan sorely needs a huge whack on the head for them to reform their economy and finances, but that is not likely to happen. So the Japanese economy will meander like a an old man but not showing any signs of dying anytime soon.

Friday, January 28, 2011

I have to apologise as I only realised there were plenty of comments waiting for me in the moderation mode. I thought (wrongly) that those comments were spams in general. I thought with 6,000 over daily readers, surely cannot have so few comments, right, or my readers are the silent type, lol. So sorry, I will visit the comments moderation page daily from now on. It was silly because I still get comments coming through to my malaysiafinance gmail inbox, so I thought that was it. The reality is, a small percentage crept through and the rest are left in the moderation box... I was shocked and embaressed that there were 640 awaiting my moderation, of course most were indeed spams.

Those who requests a blog link exchange - I would have linked you guys up without you asking. If you have to ask, most of the time the answer is "thanks but no thanks". I cannot have 200 or 500 blog links on my page, can I? But I will still visit your blog first to see if it fits both parties. I will generally not reply to links requests. Thanks anyway. Btw, I often check my links and if you do not have at least a weekly posting, I will delete the link, heads up.

I will publish the genuine ones even the ones requesting me to look into certain stocks, but I really have no time to answer all. I will answer the ones I feel like answering, and if it does not involve much work. If I don't reply directly to your queries even after publishing yours, please do not take offence. Its a blog not a an enterprise, one person doing the things he love. If I try to answer all genuine queries, I will not be a happy person, and the blog will take over my life and career.Cheers .........

Wednesday, January 26, 2011

By Shai Oster and Kate O'Keeffe, Wall Street Journal

HONG KONG—A behind-the-scenes power struggle for control of one of the world's greatest casino empires has burst into the open, revealing deep fissures in the family of ailing 89-year-old billionaire Stanley Ho.

Opposing members of Mr. Ho's sprawling family publicly accused each other of trying to seize Mr. Ho's controlling 18% stake in SJM Holdings Ltd., the Hong Kong-listed operator of his flagship Macau casinos. The stake is estimated to be worth $1.7 billion.

Lawyers who said they represent SJM Chairman Stanley Ho challenged the announcement of his succession plans, saying family members "hijacked" his assets. WSJ's Andrew LaVallee and Peter Stein discuss the latest development in the saga.

On Tuesday, rival family representatives released personal communications from Mr. Ho and his four families to prove their cases in the fight to gain a controlling stake in Lanceford Co., a vehicle that holds nearly one-third of the company that controls SJM. The stake stands to benefit from a gambling boom in Macau, where revenue is expected to rise some 30% this year to about $35 billion, compared with $7 billion on the Las Vegas Strip.

The most recent chapter of the Ho saga began Monday, with the release of regulatory filings showing that Mr. Ho split his stake, roughly in two, with slightly less than half going to the children of the woman he considers his second wife and the rest to the woman known as his third wife, leaving Mr. Ho with nearly nothing.

Ho's lawyers said he "discovered much to his horror" that his 100 percent ownership of Lanceford Co. — which holds the 32 percent stake in SJM's parent company — had been diluted after new shares were issued, reducing his share to 1 percent, the South China Morning Post reported Tuesday.

Half of the shares in Lanceford were then transferred to a company owned by Ho's third wife and the other half to another company owned equally by the five children by his second wife.

But Mr. Ho, through lawyers claiming to represent him, later denied he approved the share distribution and accused his third wife and the children of his second wife of stealing his shares without his knowledge, according to a letter provided by these lawyers.

A regulatory filing by SJM on Tuesday confirmed that Mr. Ho is contesting the restructuring.

"It would appear the assets at Lanceford have been hijacked by members of the second and third family insofar as shares were issued to the effect to dilute Stanley to nothing," said Gordon Oldham, a senior partner at Oldham, Li & Nie, Mr. Ho's lawyers. Mr. Oldham said in an interview Tuesday morning that Mr. Ho had always made it clear he wanted his assets to be held in a trust for the four families in equal share and would file a lawsuit unless the shares were returned.

Associated Press

Hong Kong and Macau tycoon Stanley Ho, in wheelchair, with some family members in November

"This has always been my intention and wish," Mr. Ho wrote in a letter dated Jan. 5 that was provided by his lawyers at the time and addressed to Daisy Ho, a daughter from his second wife.

Early on Wednesday morning in Hong Kong, representatives of Mr. Ho's second and third wives released two Chinese-language statements, one of them handwritten purportedly by Mr. Ho, saying that the tycoon was no longer represented by his lawyer and that the share transfer hadn't been made under any undue influence and that the splitting of his empire was final.

Trading in SJM shares was suspended Tuesday. Royal Bank of Scotland Group PLC gambling analyst Philip Tulk said shares in SJM, which have more than tripled in the past year, could fall when trading resumes. "Ever since I've been covering this company, the concern has been about Stanley's succession plan. Those worries seemed to be going away, but now they look like they could come back with a bang," Mr. Tulk said.

The verbal back and forth could develop into a protracted legal battle among members of the tycoon's family, said Billy Ma, a lawyer specializing in probate and succession cases and a member on the Hong Kong Law Society's Probate Committee. "Any move at this stage can potentially unleash a chain of lawsuits. This is about a huge amount of money," he said.

A domestic dispute could distract SJM's management just as it faces tough competition and important decisions about expansion into Cotai, a newly developed part of Macau. "Without consensus among the major shareholders, it will be difficult for management to make decisions. If they can't make quick decisions on investment opportunities on Cotai, the company could lose market share to competitors," said Davis Fong, director of the Institute for the Study of Commercial Gaming at the University of Macau.

The company said in a regulatory filing the quarrel wouldn't affect company management or strategy.

SJM controls about one-third of Macau's gambling market. The company's properties include 17 casinos, four slot-machine lounges and two hotels.

At the center of the fracas are two of the most prominent and powerful businesswomen in Asia, part of one of the most complicated family dynasties in business. Mr. Ho's relatives include three women whom he and others refer to as his wives, plus their children and the children of an earlier companion, who died in 2004.

On one side of the battle is Angela Leong, Mr. Ho's fourth wife, a former dancer and member of the Macau legislature who holds a top management position in casino operator SJM.

On the other side is Pansy Ho, one of Mr. Ho's five children from his second wife. She has launched her own gambling franchise and is managing director of Shun Tak Holdings Ltd., the listed property and real-estate company founded by her father. Pansy's siblings Daisy and Maisy hold executive positions at Shun Tak as well. Pansy's brother, Lawrence Ho, has set up a rival Macau casino.

Depending on which side wins, Ms. Leong could emerge with an even bigger stake and the upper hand in the casino. Or, the second wife's children, led by Pansy Ho, could have a larger and possibly controlling block in SJM.

Stanley Ho couldn't be reached for comment. Ms. Leong during an interview with a local radio station declined to comment on the latest power struggle but added that Stanley Ho was in good health and clear-minded. Other family members either couldn't be reached or declined to comment.

Questions over Mr. Ho's legacy began when he fell ill in August 2009 and underwent brain surgery. He retreated from day-to-day management and began slowly doling out portions of his Byzantine holdings to his large family.

Pansy and the fourth wife, Ms. Leong, didn't get along, according to a person close to the Ho family. When Mr. Ho cemented his fourth wife's position at SJM by handing her a 7% stake late in 2010, Pansy aligned with the third wife to counter Angela's rising power, according to the person familiar with the family. Together, the two asked Stanley Ho for a greater share of Sociedade de Turismo e Diversoes de Macau SA, the privately held company that owns more than half of casino operator SJM.

The dynastic troubles seem to have been conducted via formal letters, mobile-phone text messages and sporadic family meetings.

In a Jan. 5 letter provided by Mr. Ho's lawyers at the time and addressed to Daisy Ho, one of his second wife's children, Mr. Ho complains that he tried to talk about distributing his estate many times, but "without my consent and knowledge" his shares were nearly liquidated. "I have tried to call you and contact you through [text messages] and your secretary in order to come personally to explain to me what is going on. However, you have not responded so I have no other way but through this letter to command you come to my house," he wrote.

In a letter dated Jan. 7, Daisy Ho responded, addressing him as "Dear Dad." "Firstly, I want to apologise for not being able to see you on Wednesday afternoon as I was very tied up," she wrote, adding that her sister and wife No. 3 did meet him later that evening, "and I am glad that any misunderstanding there might have been has been cleared up."

Latest Update, The Standard HK:

Wednesday, January 26, 2011

Casino king Stanley Ho Hung-sun last night stepped in to dramatically put an end to rumors of a feud between his families over his massive wealth.

The tycoon issued a statement through his third wife, Ina Chan Un- chan, saying: "This is a family matter. We don't need any lawyer to be involved in it. We can resolve it on our own."

With her daughter Florinda Ho Chiu- wan by her side, Chan read out a brief statement from her husband after inviting the media into her opulent home on The Peak at 8pm before issuing a more detailed version at 11pm.

The move was aimed at ending media speculation about a falling out between the tycoon's second and third wives on one side, and his fourth wife on the other over Monday's announcement of a restructuring in the shareholding of his stakes in SJM Holdings (0880) and its parent Sociedade de Turismo e Diversoes de Macau.

"I heard on TV that the distribution of shares was done against my will and that fraudulent documents were made by my family members. There was even talk of robbery," Ho said. "I am very unhappy and frustrated about this. I made the decision to distribute my stakes of SJM and STDM with 100 percent sincerity. Nobody forced me to make such a decision.

"I voluntarily distributed my stakes in the companies to my family members, hoping that all of them will work hard and make contributions to charities and society."

He added: "All of you have to treat your brothers and sisters nice and value harmony. You cannot

quarrel over ownership of the companies' shares.

"I reaffirm my decision on the distribution of the shares, and this will not be changed. I have given thorough consideration to making this reasonable and with goodwill."

And he warned: "If anybody uses memos carrying my signatures to change or amend the distribution of shares then these documents are not true and, therefore, cannot be used as legal documents."

The tycoon also sacked his lawyer - Gordon Oldham of Oldham, Li & Nie. "He no longer represents me. I have delegated [third wife] Ina to be in charge of the matter and I hope everyone will value harmony, which brings wealth. I feel great today and am in a stable mood. I hope my family members will accept my arrangement."

Ho spent the night at his third wife's home. Earlier, he went to the home of second wife Lucina Ho King-ying in Jardine's Lookout.

The dispute arose after Oldham reportedly said Ho accused his second and third family members of "robbery" and that they "hijacked" him in a dispute over his distribution of his fortune. The two met at lunchtime yesterday.

Oldman said Ho has always made clear that when he dies, he wants his assets split equally among his four families. "The two families were trying to run away with the crown of jewels," he claimed.

Ho's visits to his wives were sparked by a letter the tycoon signed acknowledging his gift of the shares of STDM to his third and second families in the presence of lawyers and doctors on January 7, which was in reply to a Stanley Ho letter dated January 5.

The letter, written by daughter Daisy Ho Chiu-fung, was made public yesterday. She wrote: "Following your distribution of SJMH shares to Angela Leong [the fourth wife], Ina [the third wife], Mom and all of us children are grateful that you reaffirmed your instructions to gift the STDM shares to Mom and Ina, so as to preserve harmony within the family and aggregate control over STDM. Further, the share allocation at Lanceford was done in accordance with your instructions."

SJM is suspended from trading. The company announced on Monday that Stanley Ho will offload his 31.7 percent stake in STDM to Lanceford, which third wife Chan owns 50.55 percent, and second wife Lucina's children have 49.95 percent.

In December, he transfered 7.7 percent of SJM shares to Leong and appointed her managing director.

Lanceford issued a statement saying: "It is regrettable that Oldham, Li & Nie rushed to publicise these matters without checking the underlying facts in connection with the relevant transactions and we reserve our rights against that firm."

Leong said as a director of SJM, she could not comment. Chan said she was not qualified to comment.

Monday, January 24, 2011

We have had a tremendous run in SP Setia-WB, as mentioned before, the upside might be as good now as the bulk of news is out there. Although Mah Sing has had a good run up over the past 6 months as well, one should not overlook the further upside on the stock. I like it because of the recent strategies they have employed and is poised for a charge judging from the developments, volume and price movements.

They have sealed two landbank deals in November 2010 spending RM323.8m which would yield a combined GDV of RM2bn. The land include 61 acres of freehold land in Batu Ferringhi and 4.7 acres in Jalan Ampang (MCity project). Mah Sing had also earlier bought 34 acres in Cyberjaya. The Cyberjaya deal was a decent one considering the size and location - the flow on benefits of similar developments surrounding Cyberjaya bodes well for the purchase. One can see that they are not shy about their intentions - build fast, build well in prime areas. Their quick turnaround model reduces the risk and yet lock in the sales in an opportunistic manner. Current remaining unbilled GDV stands at close to RM10bn.

RNAV stands at anywhere between RM2.30-RM2.70 depending on how you value them.

CIMB came out with a target price of RM3.30 and was catapulted as their top property pick in 2011. Well, everyone knows how well they are doing, so whats more for the upside?

Revenue and net profit for 2009 were RM701.6m and RM94.3m respectively. For 2010 those figures probably jumped to RM990m and RM120m. For 2011 those figures are likely to hit RM1.5bn and RM170m respectively. While doing all that it can still maintain a dividend yield of 3%-4% inspite of the uptrending share price.

Mah Sing as a company is highly attractive to top tier HK and Singapore property players. Herein lies my strongest catalyst: a significant player should be getting into Mah Sing in a substantial way. There have been plenty of cold calls and hot calls to Leong Hoy Kum for such a deal and I believe the time is ripe to play the partner tie-up card.

If a top HK or Singapore player is in, it speaks volume for its already top tier branding. Its regional customers would be more willing to follow Mah Sing's projects in a sustained way. Mah Sing's landbanking strategy, quick turnaround, undemanding valuations, great dividends amidst an appreciating share price, great execution and delivery, and a meticulous focus on financials and internal KPIs - makes the stock a natural property play into Malaysia.

The focus of Mah Sing is in the right sector, the mid-to-luxury strata, which the other regional top property players are hoping for. For Mah Sing, as their revenue grows 30% year on year, to just rely solely on Malaysian investors would not be wise as their larger sales volume would require a more sustained growth in demand from regional investors as well.

A corporate exercise could come two ways, one involving solidifying PNB's other property companies under Mah Sing or the issuance of new shares to a top HK/Singapore property company. PNB holds about 22% in Mah Sing. Both possibilities would see Mah Sing treading new grounds. I see little resistance to RM2.50 over the next 3 months. If a corporate exercise eventuate, we are looking at RM3.00 for sure.

NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees. The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

Malaysia's policy makers have been forced to confront the factors blocking the country’s rise to high-income status. Facing higher labor costs, the economy has been unable to maintain a growth model based on low-value-added manufacturing that was largely successful for the 30 years prior to the 1997 Asian financial crisis.

One of the most noticeable manifestations of this so-called middle-income trap has been the secular decline of Malaysia’s once-dominant electronics and electrical products (E&E) sector, examined in “Still Not a Tiger: The Decline of Malaysia’s Electronics Sector,” available exclusively to clients. At the sector’s height in 2000, E&E accounted for more than one-third of the country’s total value added in manufacturing, over 70% of revenue from manufacturing exports and almost 4% of world E&E exports.

Since then, Malaysia’s E&E sector has witnessed dramatic deceleration in productivity, stagnation in exports and deterioration in its global market share. The sector remains dominated by downstream industries that increasingly face competition from lower-cost producers in the region, including the Philippines and China. Confronting similar challenges, the Asian Tigers (South Korea, Singapore, Taiwan, HK) were largely successful in transitioning to higher-value-added E&E production.

Beginning in the 1960s, Malaysia and Singapore (and, to a lesser extent, Taiwan and South Korea) industrialized by encouraging multinational corporations to take advantage of their relatively cheap labor forces and establish downstream E&E production facilities. In Singapore in particular, the presence of multinationals spurred local entrepreneurs to begin “clustering” around downstream enterprises, acting as suppliers and logistics managers.

Over time, this led to the development of a robust, indigenous E&E sector that increasingly produced further upstream, which typically included the stages in the supply chain in which labor adds more value—i.e., the stages with higher levels of labor productivity. By the time labor cost increases forced downstream production facilities to lower-cost markets, local firms were experienced and competitive enough to continue operating in the E&E supply chain at higher levels of value added. In this way, Singapore has managed to increase its global market share of E&E since 2000.

In contrast, Malaysia’s E&E sector has been unable to adjust to shifts in the country’s comparative advantage. One important barrier has been ethnicity-based affirmative action policies, which have stifled the evolutionary process that other export-driven economies in the region were able to ride to higher-value-added production on their way to high-income status. Established under the New Economic Policy of 1971, affirmative action in Malaysia seeks to rectify socioeconomic disparities within the local population by expanding opportunities for ethnic Malays (bumiputra or bumiputera) in areas like education, housing and investment, often at the expense of other ethnic groups (namely ethnic Chinese).

These policies have not only exacerbated the country’s brain drain of talented non-bumiputra; they also have created a strategic disadvantage for local firms by limiting both human and Financial capital and perpetuating an unlevel playing field for entrepreneurs. All domestic companies incorporated in Malaysia must reserve at least 30% of new shares for bumiputra to purchase at discounted prices. This essentially taxes local start-ups that wish to go public and makes expansion more difficult, which helps explain why initial public offering growth was relatively flat through the 2000s and why equity remains a minor source of manufacturing investment financing. Meanwhile, the continued presence of the government in the economy—via procurement policies and access to joint ventures with the nearly 500 government-linked corporations—has provided ample opportunity for rent-seeking by well-connected bumiputra who can take advantage of favorable policies.

The New Economic Model—presented in 2010 as a 10-year vision for Malaysia’s ascension to high-income status—proposes “revamping” affirmative action “to remove the rent seeking and market distorting features” and shifting the basis for eligibility to socioeconomic status, rather than ethnicity.

Yet given the governing party’s reliance on bumiputra support, major changes are unlikely until new elections are held and the government has the political confidence to confront popular resistance to reform. The underperformance of the E&E sector over the past 10 years should serve as a warning to the country’s policy makers that the continuation of distortionary policies may limit Malaysia's future growth prospects.

China's tightening moves recently caused markets to take the opportunity for a bit of correction but underlying strength is still very firm. There are sparks of optimism in Europe, in particular Germany but the rest of EU and UK are still struggling. US has indicated no withdrawal of QE2 signifying still dormant interest rates.

In Malaysia and Indonesia, foreign funds are parked there to reflect their optimistic outlook for 1Q 2011. Both currencies are among those favoured for strength in 1Q, can expect hectic bullish activity in 1Q.

Thursday, January 20, 2011

The question on everyone is asking is what the hell happened to the market over the last three days? Suddenly, it went to sleep, its like all the syndicates went to play golf. OK, that is not a fair comment but the market momentum kinda got sucked out for no apparent reason. There is no bad market news, nothing politically negative. Ask a remisier or dealer they will dig deep to give you an answer, and that answer will be "Aiyah, investors pulling out money from the market la for CNY".

What kind of b.s. reasoning is that? Is this the first year we are having CNY?? It seems to me that its a healthy correction but nobody seems to think it is one. We see popular stocks dropping 2-3% a day, nothing major, we see volume on popular stocks dropping by 50% or more, but nothing major. If you check back to volume traded last week, it was quite substantive. The fact that we are seeing only mild pullback now is a great bullish sign.

If one still has fresh funds, getting back in now is a good idea. Recent new listings are very interesting, but was thwarted somewhat by the slowish market. There was Tambun, Benelac and KSS. Herein lies the key, look at Benelac, the stock has very good fundamentals, the first day saw a good day but not spectacular. The sluggish market overall caused many shares to come out. However, it rebounded very well on second day and I think its a RM1.60 stock anyway.

Tambun I am not so keen. I am very keen on KSS. I see it having the same trend as Benelac, first day was mainly collection. Watch KSS for its second and third day, I see the stock at 75 sen minimum as fair value.

Wednesday, January 19, 2011

Let's see which research house is most bullish. Got my hands on Deutsche Bank's prognosis for 2011. My comments in colour.

Off to a strong start (3.9% YTD); transformation underway

In an ASEAN context, Deutsche Bank is positive on the Malaysian market in 2011. Confounding the skeptics, Malaysia is (finally) delivering on its ambitious transformation plans and this is increasingly being recognised by the market. Food and fuel subsidies are gradually being abolished (kerosene +4.2% since November, diesel +8.6%). This is a bold political move given decades of hefty subsidies. (Yes, they are bold moves, and necessary as well. Will that hit their political hopes to get a bigger majority? Probably not as the overall economy is still chugging along, property is still up, stocks are up, when there is +++ in the wallets, not many will complain. Will there be harsher moves on subsidies after the election? Maybe, a GST is likely, which is good really for the longer term. To be fair to the government, they have not shied away from reducing subsidies for fear of losing political support. That in itself is a significant measure to foreign investors as Malaysia certainly can no longer afford that same level of subsidy for the past few years. The sooner we change tack the better. The subsidy mentality also affects the same sense of entitlement, and is actually a poor way of managing resources - naturally the lowest strata will be badly affected, but as long as we make sure they are properly counter balanced, the subsidy removal actually causes all businesses to be more proactive and take steps to have a more competitive business model. Ever wonder why so many local companies cannot go regional, its the subsidy mentality, many can no longer see the required margins once they leave the kampung - hence the removal of subsidy is in effect a much needed change of mindset).

Local contractors are busy again with projects (e.g. RM36bn MRT project just approved by the cabinet) essential for keeping pace with economic growth. Malaysians are confident again, evident in the strong rebound in retail sales (projected at 10-12% YoY in 2011), M&A activity accelerating (Malaysia posted the biggest YoY jump in M&A in Asia in 2010) and property sales lifting.

This is not a defensive market; Malaysia to deliver 26% growth in 2011

Collectively, the structural initiatives over the last five years have started to pay off. These include:

a) the aggressive restructuring of most GLCs,

b) rapid offshore expansion by Malaysia companies,

c) market liberalisation measures,

d) abolishment of the Foreign Investment Committee (FIC) guidelines in selected sectors, and

e) the listings of companies such as Petronas Chemicals, MMHE and Maxis.

These initiatives have raised earnings volatility but, in turn, earnings growth has strengthened materially. Earnings from offshore entities (largely ASEAN based) now account for 32% of total earnings (based on our universe of stocks) versus just 10% in 2005. By 2012E, we forecast this number to climb to 36%. This is a significant change that we believe the market has yet to fully appreciate. And it is why Malaysia’s earnings growth of 26% in 2011E is just slightly behind that of Indonesia at 27%. The Malaysian market offers a strong growth proposition combined with a dividend yield of 3.5%, above the regional average. (Important point which I agree totally, though the Indonesian market has been the blue eyed boy for foreign funds over the last 2 years, the gap between Malaysia and Indonesia should start to narrow. In fact, we are seeing some of the same funds, parlaying similar bets into Malaysia just as they did in Indonesia two years back).

14% upside to our FBM KLCI index target of 1,790

We see further upside risk to earnings in 2011 as commodity prices stay lofty, M&A activity accelerates further, and earnings from offshore entities have an impact. Our index target of 1,790 suggests 14% upside to the market over the next 12 months, pegging the market at 15.5x PER 2012, which is one standard deviation above post-2002 earnings. We do not think this is demanding for a market that is delivering on positive structural changes, offering superior growth in 2011 and greater exposure to the ASEAN growth footprint.

Malaysia is enjoying strong inflows into the equity market (ADTV YTD at US$830m vs. US$480m in 2H2010), foreign shareholding is climbing (22% as of December 2010) and by June, FTSE should upgrade Malaysia from “Secondary Emerging” to “Advanced Emerging”, which should drive passive inflows (c. US$392m) and positive sentiment. For exposure to Malaysia’s growth themes, we like CIMB, Petronas Chemicals, KLK, AMMB, IJM Corp, AirAsia and SP Setia.(My target for this year is not as high as 1,790. I think the exuberance would propel the local index to 1,700-1,730 as the high range. I would start to reduce leverage and maintain at least 50% cash as the markets move beyond 1,700).

Friday, January 14, 2011

In the midst of a bull run, it is hard to stick to your principles of investing. You get dragged to punting stocks left right and center. Stocks you would never consider suddenly looked attractive. Still, one must shift their investing strategy slightly depending on the markets, without sacrificing the basic tenets of investing. As prices run, even so-so counters will rise. It just takes that much harder to locate gems about to start a run up - my type of strategic investing.

Well, Century Logistics fits the bill as the long striving business nurturer. Following the difficult global trading conditions in 2008 and 2009, the company has maintained good discipline and continued to invest logically and expand their revenue streams assiduously. Century Logistics is one of Asia’s leading providers of integrated logistic services. Century provides integrated logistic solutions to clients covering land logistics, warehousing, management of the supply chain, international freight forwarding and so forth.

Century is in a good position to cross sell its various services to customers while graduallyoffering integrated services to the clients. Century Logistics is currently expanding its warehousingcapacity and is looking to attract large companies while providing cross-selling opportunities. Century Logistics is continuing its climb further up the value chain with its strong branding and reputation. The strong branding and reputation is enabling Century to expand even further by enabling Century to bid and participate in larger international deals.

Diversification into favourable segments. Century Logistics is a very vibrant group which hasconstantly strived to improve itself. It has over the years diversified into a few other activities. Some of these diversifications had been grown very successfully and now contributes to the success and growth of the group. Successful diversifications includes operating Ship-to-Ship transfer of bunker fuels. Century operates in Tanjung Pelepas and Pasir Gudang. Another diversification which has become a staple to Century includes assembling and managing the logistics of electronic appliances for domestic and export markets. This is highly synergistic to Century’s existing operations.

Catalyst #1: Century Logistics has successfully secured a contract with F&N Dairies to provide all transport logistics for the latter’s inbound movement of finished dairy products. The 3-year contract will kick start sometime in June-July this year.This marks Century’s second largest MNC client after Nestle, from which it secured a contract 3-4 years ago. With this big client coming on board, there is good potential of Century securing more sizeable long term contracts. This contract’s contribution to revenue is estimated at RM20m-RM30m a year, especially for Century’s warehousing and land transportation segment, and fetch a net margin of 5%.

Catalyst #2: Management is targeting for the group’s revenue to grow by more than 20%y-o-y. If you consider their EPS and PER you will know that this is a pretty undervalued stocks, still off the radar of most funds. New clients in South America for shipments of microwave ovens and LCDs are also due to come in this year, from which revenue would be earned in EUR, which would in turn enhance the division’s overall margins. For the ship transfer division, management has guided for volume turnover to continue to be encouraging on orders from oil traders.

Catalyst #3: Proxy to improving global trade. Their three core businesses -- third party logistics, oil and gas logistics and procurement and assembly -- should grow further as global trade picks up in tandem with economic growth. To meet the growing demand, he said the company has aggressively expanded its warehouse and storage capacity in Pelabuhan Tanjung Pelepas (PTP) by another 103,000 square feet. The additional capacity was completed by third quarter of 2010. It also intends to have at least 200 units of trucks from 170 units a year ago, a great indication of underlying business demand.

Catalyst #4: Regional expansion underway. Century is also planning to build its headquarters and distribution hub on a 30-acre piece of land it bought last year in Bukit Raja, Klang. Indonesia and Vietnam are their targets this year. The company has already ventured successfully into Thailand, India, China, Syria and Argentina.

The company should record revenue and net profits of RM280m and RM29m respectively for 2010. That translates to an EPS of 32 sen on 89.3m shares (inclusive of weighted warrants dilution). Even if you take in the full dilution of 40m warrants, you are still looking at 23 sen net EPS for 2010, and at RM2.00 its a PER of 8.7x.

Judging from the new MNC client, added capacity at PTP and other positives, for 2011 we can assume revenue running to RM325m and a net profit projection of RM33.5m, or a net EPS of 37 sen or 27 sen fully diluted. Even at RM2.00, you are looking at pretty ridiculous PER, its too embarrassing to write it down even.

Plus it has entered into a new growth phase as EPS is projected to grow by 15%-20% yoy for 2011 and 2012 at least. The brand is good, the business rewards longevity and good reputation. Its high time investors take a serious look at this stock. I see it at RM2.80 within the next 6 months.Even then, you are looking at a 2011 PER of just 7.56x or 10.3x fully diluted. Judging by its fundamentals, with just 89m shares, its ripe for a generous bonus and/or split.

NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees. The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

Thursday, January 13, 2011

Well, its been oil and gas and more oil and gas, does it really matter which counter?

SP Setia - 500% run for the warrants, I am happy, upside limited from here on.

Affin - denied by CIMB and Affin, bottomline Affin will have to merge with someone within 6 months, bottomline, its still cheap ... single girl at a party with drunks, action not over yet.

Hap Seng Consolidated - the selling over last 2 days was apparently by a fund (local), over done, scary though ... if go through exercise should come out ahead even if you bought at RM7.40.

Air Asia - RM3.30 is about right in this run up.

Gamuda - haven't moved really.

DRB Hicom - when people say its a syndicate play, I say b.s., which syndicate has that kind of money to bring it up from 1.40 to 2.20??? shares being mopped up by you know who, an exercise is imminent, but we don't know when.

TA and OSK - Good volume, these two should be hitting 1.10 and 2.40 soon in this run.

I have tons of photos on my camera, my iPhone, my friend's iPhone ... its so hard to get organised. I could be posting for a few days straight on this trip alone. Not my first time to Japan, but it was well organised. Now that AirAsiaX flies to Haneda, there is no need to join a tour, just take a similar itinerary as below free and easy:

Day 1: Asakusa, Sensoji temple, the rows of traditional snacks cooked on the spot delicious, just remember that you should not be eating as you walk, stay in one corner and finish your snack. Walk around Asakusa and then drop by Ginza.

Day 2: Roam Roponggi, esp Roponggi Hills, a modern architecture marvel. Move to Shinjuku, take in the x-rated dvd shops. Drop by Harajuku on the weekend as well.

the sumo wall outside the kokugikan

robouchon, good stuff

the takanawa street @ harajuku, madness

Day 3: Full day tour to Mt Fuji, Lake Ashi cruise, and cable car ride up the mountain. Then get to take bullet train back.

Day 4: Spend whole day at Omotesando, forget about Ginza, this is very happening and fun. Must have lunch at Cafe Anniversaire, its brilliant and you will definitely get to see a wedding or two as the whole alley include a church setting for wedding events.

Day 5: Spend an afternoon watching sumo live, you will love it. My idol Asashoryu was recently fired for street fighting but the current yokozuna Hakuho is pretty good too. Great seats all around, can even see the cellulite on their ass.

Day 6: Shop at Shibuya. Catch a show at Blue Note Tokyo, unbelievably Christopher Cross was performing. If I was a week early it would have been Patty Austen, next week it would have been Earl Klugh. Brilliant.

There are other things you could do: Disneyland, take the 2 night stay at Mt Fuji/Hakone where you will get to enjoy traditional onsen with real hot springs, naked. You can take in the early sights at Tsukiji as well.

Try and splurge by going to a few 3 or 2 Michelin star restaurants such as Robouchon, Ryugin, Kanda, Koju ...had to include this live abalone, the size of my palms, before the teppanyaki chef got to it ... yummm

Wednesday, January 12, 2011

Its been a tiring 8 days in the Land of the Rising Sun ... now stuck at Changi on my way back to KL. Read The Straits Times and thought it was very funny to see UOB Kay Hian circulating a memo to thier staff on "how to do self exclusion" from the 2 integrated resorts. You can actually apply to have yourself barred from entering the two casinos, or your parents or spouse could do that for you as well, provided there are sufficient proof that you are a problem gambler.Now, why would a top local broking house do that? Its a bit embarressing. A gentle reminder? Or do you already know of problem gamblers within your midst? Must be some over-power-hungry HR staffer trying to win brownie points.As if you didn't already know that stocks investing is almost like going to the casino - except that we don't yell picture picture loudly ... we do yell profanities though, whether they are going up or down. Or is it that the broking house knows that more money lost at casinos will translate to less funds available for stock punting or "remisiers' collateral".Anyways, came across The Black Swan book by Taleb again, I have one big black swan but this black swan is a positive one not a dangerous one. I think most people would have the US economy sputtering at 2%-3% growth in 2011 .... the black swan is, how about 5%-6%. Think about it.My other early prediction in 2010 about CIMB buying Public Bank did not come true, not yet anyway ... temporarily, CIMB may have shifted its target to acquiring Affin Bank @ RM4.50 according to reliable sources. So reliable, that they had to call me up in Tokyo. Traders beware.I checked prices yesterday with a friend and relayed the story, he said "no-la, CIMB came out with a buy report on Affin". I said, "I knew about the buy report 3 days ago, sometimes things are not so obvious, sometimes they are so obvious you forget to look a bit further.

Saturday, January 08, 2011

Assume 1,000 Hap Seng ConsolidatedCost = RM7,500Bonus Issue: 2,000 sharesTotal shares: 3,000 sharesRights Issue (1 for 5): 600 shares @ RM1.33 = RM798Warrants Issue (1 for 5): 600 warrants freeTotal cost: RM8,298Holdings: 3,600 shares + 600 warrantsTheoretical ex-all share price: RM3.00 - RM3.20Theoretical warrant price: RM1.50 - RM1.80Dividend @ 11 sen = RM396Shares Value: RM10,800 - RM11,520Warrants Value: RM900 - RM1,080Potential Proceeds: RM12,096 - RM12,996Cost of Investment: RM8,296Potential Return (on the 3 month exercise): +45.8% to +56.6%I am not the only one punching the calculator. The proposed placement of 124.532m new shares @ RM6.49 will bring about some RM808.21m cash to the company. Of that sum, RM240m is for capital expensiture for the existing group's businesses. RM300m is to pay down borrowings, and RM268m for working capital.The rights issue will bring about another RM654m cash to the company. Of that, some RM220m is for potential land acquisition, RM200m for repayment of borrowings and RM234m for working capital. Thats a lot for working capital if you add RM268m plus RM234m = RM502m.Considering the amount for working cap and expansion, the company has injected a war chest of RM502m + RM460m = RM962m. In addition it will be paying down some RM500m in borrowings as well.The new paid up will see some 2.689bn shares plus 448m warrants.My theoretical ex-all price is based on the new fundamentals for the company, I could wrong or over-optimistic here of course. As things stand the ex-all price is around RM2.30. Judging from the lucrative exercise, there should be few sellers leading up to the ex-date. It should be well supported up to RM8.00.

Thursday, January 06, 2011

In Tokyo for now ... Pierre Gagnaire is a 2 Michelin star chef. Its pattserie is at the lobby.

Will be trying its degustation menu later on Saturday. Life is too short.I must say, his tart was pretty mind blowing.

Days 1 and 2 at Tokyo ... had to rush back to Shinjuku Washington to get the Nagasaki beef .. the Manhattan Table serves very good Miyago Prefecture beeft and Nagasakui tenderloin. They are not your Kobe beef or wagyu beef type ... more like great OZ or NZ material, but much softer yet flavourful.

Monday, January 03, 2011

You know some stock tips, you give to people, they will mostly not follow because they had a look at the chart. Hap Seng Consolidated is like that. The stock did not have any major corporate exercises in recent years. The deep embedded value of this company appeals to many. However, when it started moving about 6 weeks ago, many long term holders would have taken the opportunity to cash out. Why not, it gave more than a 100% return.

It is very natural to shy away from stocks that have had a run, thinking you were late in entering. That is a safe rule of thumb, but one which is tainted by our experience with speculative counters. When a speculative counter runs, say Iris, from 20 sen to 60 sen within a few weeks, to get a tip when its at 60 sen is akin to giving the person who gave the tip a tight slap.

When a counter is not a speculative counter but one which is fundamentals or value driven, e.g. DRB Hicom, Hap Seng Consolidated, BIMB, Kumpulan Fima ... we need to put on a different set of thinking cap. Look at the presumed catalysts, analyse the likelihood of these catalysts coming to fruition, assess the "character" of the stock (i.e. management and owners) ... you would be able to form a better view.

Another critical assessment is whether the stock is overbought, do you have a feel who is taking shares from the market at higher prices, do you have a sense of churning or stock distribution at certain levels ... Then you will get a better grip on whether the end buyers are solid or for trading purposes only.

Then analyse the presumed corporate exercise, not all are great value add, you have to distinguish between genuine unlocking of values or a meaningless exercise.

So the important question is who is still buying at RM6.50, RM7.00, RM7.35??? How in hell are you going to unwind those positions? If you can answer these two questions, then only go long. If not, please avoid.

I am focusing on Hap Seng Consolidated because I really like the purported corporate exercise. Whether its a share split or bonus issue, this seemingly benign thing will bring about substantial liquidity to the counter.

The reinvention includes institutionalising their shareholder base from a largely owner/retail to owner/institutional. Some of you may have picked up on the crossing of a 12m block to a new buyer, reported to be UBS. The involvement of the foreign investment bank may be the key to the entire exercise. UBS may hold, collect more shares or distribute to foreign institutional clients - all of which are highly positive to reinventing Hap Seng Consolidated.

Part of the exercise is supposed to include warrants and a special dividend of between 40-70 sen. Enough said.

Valuation wise, the counter has been below RM4.00 because research coverage has been poor, lack of institutional support, the size and liquidity have been lackluster for a long time... fundamentally every single business unit of the company is doing well. Its high time we have another Sime Darby, look at how dismal and disappointing Sime Darby has been and yet it trades at 18x forward earnings still. Hap Seng Consolidated is likely to make 50 sen per share in 2010 alone, which is why when all the cards fall together, it should go to RM8.00-8.50 as a base valuation (or 15x 2011 earnings, still a discount to Sime Darby).

Malaysian stocks are getting more attention and the timing is right to put Hap Seng Consolidated next to Sime Darby or Boustead as genuine options with sufficient liquidity and stellar management to boot.

To top it all off, the reinvention may only be just a makeover of the same old lady, but you end up with the same old lady - to that end, the company has embarked on a grand expansion plan into Vietnam and Indonesia. In particular Indonesia, where its range of business units appear to have marked out growth strategies to replicate their business model. This is a key attraction to foreign funds as it kills two birds with one stone. Indonesia is a more favoured market among emerging market funds, and Hap Seng is into the very critical businesses that will give them the right exposure.

HSC Businesses:

Quarry and Building MaterialsBenefit from projects. The 2011 Budget announcement had largely focused on construction and development. Construction boom. Even without government support, private initiatives have beenburgeoning with many property developments being sold and continued developments. Plansfor towers of buildings in the Klang Valley had continued to surface constantly. With theongoing and even more upcoming developments, demand for building materials couldpotentially accelerate. Hap Seng Trading was appointed by Malaysian Mosaics Bhd on 30 June 2009 as its sole and exclusive distributor of MML tiles in Malaysia. Recently there was a privatization of MML which indicates value in the company. This hints positively to the segment.

PlantationOwns 52.53% of Hap Seng Plantations. Hap Seng Plantations is predominantly an oil palm planter in Sabah. It is an efficient planter with large economies of scale. Earnings rerating. CPO prices has increased rapidly over the half a year. With the large increase, earnings of planters are expected to increase substantially. Stock price increase in the industry has currently lagged the potential increase in net profits. Moreover, the USD has been strengthening against the ringgit, giving strength and competitiveness to the CPO against other oils especially soybean oil.Hap Seng is synergistically tied to its fertilizer division as well. High Efficiency. HSP is one of the most efficient planters in the industry with FFB yields of 21.5 metric tons per hectare and an OER of 21.6%. Moreover, HSP has a contiguous plantation which offers far more efficiency and scale than planters with plots of land in various locations. The group has a FFB yield of close to 700,000 metric tonnes per year. The group also operates 4 mills.

Plantation landThe total area of Hap Seng Plantations estates is 39,803 hectares. Hap Seng Plantations operates on one contiguous block of plantation land of approximately 36,354 hectares between Lahad Datu and Sandakan region, in addition to two smaller plantations of 1,276 hectares in Tawau and 2,173 hectares in Kota Marudu. 34,467 hectares of planted area comprises 32,576 hectares of matured oil palm and 1,891 hectares of immature plantings.

Agrobusiness-FertilizerMalaysia and Indonesia. Hap Seng’s fertilizer business is primarily in Malaysia andIndonesia. We do see some growth in the sector with higher CPO prices and as Indonesia’splantation acreage increases and matures. Currently a very large amount of plantation land ismaturing and coming onstream annually. The fertilizer business is complementary and synergistic to Hap Seng’s plantation segment. This is especially the case with rising CPO prices whereby demand of fertilizer normally increases.

Property developmentHap Seng’s property focus has been primarily on low-rise residential properties in major urbancentres. Hap Seng’s key development area has been in Sabah. Hap Seng has developments in Tawau, Sandakan, Kota Kinabalu in Lahad Duta. Hap Seng has developments in all 3 key segments including residential, industrial and commercial. Branching out into Klang Valley. Hap Seng has ventured into the Klang Valley in recent years through D’Alpinia located in Puchong. It is located in the fringes of Puchong close to Seri Kembangan and Putrajaya. It is a relatively large development of 76 acres of land and is of a build and sell concept. The units are of modern contemporary design. Phase 1 was launched in late 2009.

Group synergyHap Seng’s property arm plays a synergistic role with the group. Hap Seng’s property arm benefits directly from its quarry & building materials arm and provides the latter with ongoing orders. Hap Seng’s property arm could benefit from lead time, consistency in demand and product quality. Hap Seng’s property arm could also benefit indirectly from their Credit Financing arm as it also serves construction and property related businesses.

Property HoldingsThe group’s flagship Menara Hap Seng has seen a high occupancy rate of 94% for its tower block and 88% for its podium. The division continues to contribute substantially to the division, providing it strong cash flows and relatively stable earnings. Hap Seng has a 1.1 acre freehold land adjacent to the building and the 31,000 sq ft 1 ½ storey Hap Seng Star Mercedes-Benz showroom. The showroom has very premium frontage of Jalan P Ramlee and Jalan Sultan Ismail in the Central Business District of Kuala Lumpur. The area has the potential to be redeveloped into a very premium and high visibility commercial block.

NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

About Me

Its Salvatore cos' Salvador was taken already. This blog hopefully embodies Dali's spirit: intelligence, creativity, deep dreams, symbolism, whimsicality, enrichment of lives (p/s only Asian girls are featured on the left column)